Sakura Sogo REIT Investment...

Sakura Sogo REIT Presentation Material

Supplementary Material – Rebuttal to Star Asia

Sakura Sogo REIT Investment Corporation（Code：3473）

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Sakura Sogo REIT Investment Corporation


• Hostile approach taken by Star Asia creates a dangerous precedent and threatens the value of Sakura unitholders’ investment and the stability of the entire J-REIT sector

• Sakura can demonstrate superior performance relative to Star Asia and that the Sakura REIT portfolio is of a higher quality than the Star Asia REIT portfolio

• The “merger proposal” put forward by a unitholder controlled by a competitor (Star Asia) is NOT in the best interests of Sakura unitholders

Message to Sakura Unitholders

Seishin Building / Shinjuku-Ku Matsuya Residence Sekime / Osaka Takadanobaba Access / Shinjuku-Ku


Section 1

Dangerous precedents for J-REIT Sector

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Star Asia is attempting to bypass fair merger protocols

Approach taken by Star Asia creates dangerous precedents for the J-REIT sector

• Unitholder using tactics to benefit a related party with misaligned interests with all other Sakura unitholders

• Attempt to eliminate any bone-fide and fair negotiations for a merger

• Attempt to eliminate any possible alternative proposals that may offer superior value for Sakura unitholders

• Attempt to replace existing manager without legitimate reasons, or expressing any concern with the manager prior to issuing the notice

• Unitholder taking a strategic stake in Sakura REIT for the sole purpose of taking this abusive action

• Attempt to take advantage of “Deemed Approval” system which exposes all unitholders to significant risk in these circumstances (refer slide 7)

• Proposing a merger without disclosing any meaningful information about the merger terms, the merger ratios or the merger benefits, if any, to Sakura unitholders

• Proposing to have a single manager for two REITs with the same or very similar investment mandate creating serious conflicts of interest

• Providing no detail about how, or if, these conflicts of interest can be satisfactorily managed

• Ultimate objective is to force Sakura unitholders to a meeting where they will have no option other than to accept a forced merger, irrespective of the proposed terms

Potential to severely disadvantage other J-REIT unitholders, not just Sakura unitholders

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Attempt to Bypass Fair Merger Protocols (1)

Unitholder request for extraordinary

unitholders meeting

Request extraordinary unitholders meeting as soon as

possible

• Eliminate any and all bona-fide and fair negotiation for merger

• Eliminate any and all possible alternatives for Sakura unitholders

• Star Asia made no attempt to discuss any potential merger or concerns with management

Process Star Asia Proposal Sakura’s View

General unitholders meeting

Change executive directorand asset manager

(Decided by the approval of more than 50% of Sakura

unitholders)

• Attempt by Star Asia to force a merger by:- replacing the manager without legitimate reasons and,- without disclosing merger terms and merger ratio

• Attempt to control and force merger effectively negating the two thirds voting threshold required by law (refer slide 7)

1

2

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Attempt to Bypass Fair Merger Protocols (2)

Merger Agreement Negotiations

Same asset manager in control of two REITs with same

investment mandate

• Serious conflicts of interest with no clear plan to manage• Fair negotiation highly unlikely given disproportionate

ownership interest• Star Asia Group owns 17.9% of Star Asia REIT and

only 3.6% of Sakura REIT• At this point, no alternative options would remain for

Sakura unitholders• Likely that Sakura would be neglected as both REITs

compete against each other. This may lead to erosion in value of Sakura and ultimately less favorable merger terms

General unitholders meeting to approve

the proposed merger

Approving the proposed merger(Decided by the approval of

two thirds of Sakura unitholders)

• Unitholder meeting to approve merger when there will be, in a practical sense, no alternative other than to accept a forced merger irrespective of terms

3

4

The process proposed by Star Asia Group to effect the merger is not consistent with the normal merger protocol (Refer to slide 7)

Process Star Asia Proposal Sakura’s view

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Merger under Commercial

Code

Approved by shareholders meeting by two thirds voting

threshold

Star Asia Proposal

Minority (3.6%) unitholder requests for general unitholders meeting

To change Sakura executive director and asset manager by 50%

approval

Approved by unitholders meeting by

two thirds voting threshold

Boards of both parties negotiate and agree on conditions of mergerSign merger agreement which includes merger ratio

Merger ratio and terms

determined

No request for discussion over

fund managementNo discussion /

negotiation offered regarding merger

proposal

Sakura will be in effect under the control of Star Asia

No bone-fide and fair negotiation on

behalf of the current Sakura unitholders

No alternative other than to accept a forced merger

irrespective of terms

Key concern with abusing the

Deemed Approval System

Normal Merger

Hostile Takeover

1. There is a unique system to investment corporations called “deemed approval system”, i.e. unitholders who do not exercise their voting rights will be deemed to have agreed to the proposal

2. Unitholders of a REITs are not proactive in exercising their voting rights at general unitholders meeting, which means Star Asia can leverage its 3.6% holding. For example, if 50% of unitholders do not vote, the Star Asia proposal will be deemed to been approved by 53.6%

3. Therefore, the Star Asia Proposal could be approved even if half or more (in the case of a merger, more than one third) of the Sakura unitholders who cast their vote dissenting from the Star Asia Proposal

Issue of “Deemed Approval System” in Japanese Investment Trust


Section 2

Sakura Management and portfolio superior to Star Asia

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Sakura REIT can demonstrate superior performance relative to Star Asia REIT and that the Sakura REIT portfolio is of a higher quality than the Star Asia REIT

• Higher annual compound growth in net assets per unit (last four Fiscal Periods)

• Distribution – more sustainable, lower volatility – higher average distribution yield on IPO issue price1

• No unrealised losses vs Star Asia REIT (7 properties/ 429mn JPY)

• Superior portfolio asset mix• Consistently higher occupancy vs Star Asia REIT

There are no legitimate reasons to replace the Executive Director or Asset Manager of Sakura REIT

Sakura REIT can demonstrate superior performance

Note 1: Excludes gains on asset sales

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Sakura REIT Star Asia REIT

Growth in net assets (NAV) per unit

(Note 1)(Note 2)

“Sakura REIT has demonstrated clear outperformance from 1 February 2017. This is the periodduring which Star Asia REIT has completed 3 follow-on public offerings.”

Properties with unrealized losses(# of properties /

amount)

“No property in Sakura’s portfolio has an appraisal value less than book value. In contrast, Star Asia REIT has 7 assets (20% of the portfolio) with unrealized losses. This suggests they are either paying too much for each property or the properties are under performing post acquisition”

No unrealized losses7 properties with

429 mn yen total unrealized losses(as of the end of FP6)

Average DPU yield on IPO issue price (ex. gains on sale)

(Note 3)

“Sakura has achieved a higher average distribution yield post IPO relative to Star Asia REIT”

5.8% 5.3%

Sakura Delivers Superior Performance to Unitholders

(Yen) (Yen)

CAGR

2.22%(FP2-FP5)

CAGR

1.27%(FP3-FP6)

111,884

112,412

112,965

112,537

111,200111,400111,600111,800112,000112,200112,400112,600112,800113,000113,200

FP3 FP4 FP5 FP60

Note 1: Net assets (NAV) per unit = ((net assets – total amount of DPU+ appraisal based unrealized gain) / total number of investment units issued and outstanding}Note 2: CAGR of NAV = (Growth in net assets (NAV) per unit for the past 4 FP)^(1 / operating fiscal period)-1 Note 3: Average distribution yield per unit based on actual distributions (ex. gains on asset sales) / IPO issue price

95,77996,470 96,882

97,405

91,000

92,000

93,000

94,000

95,000

96,000

97,000

98,000

FP2 FP3 FP4 FP50

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Distribution per unit (DPU)

Sakura REIT

Star Asia REIT

1,529

2,863 2,676 2,344 2,6621,529

2,8633,460

2,772 2,662

0

1,000

2,000

3,000

4,000

5,000

FP1 FP2 FP3 FP4 FP5

Distribution per unit excluding gain on sale Distribution per unit with gain on sale

Distribution – Less Volatility, More Sustainable

(Yen)

(Yen) Includes net realized gain on sale of Comfomall

Sapporo (142 mn yen)

Return of gain on sale

Note 1: The figure is calculated after conversion to 6 months

(Note 1)

“Sakura’s actual DPU is less volatile and supported by strong underlying portfolio performance”

“In contrast Star Asia’s DPU has been volatile and relies on asset sale gains in several fiscal periods. This is unsustainable longer term”

968

3,1122,254 2,487 2,773 2,684

968

3,112

4,423 4,077

2,7733,720

0

1,000

2,000

3,000

4,000

5,000

FP1 FP2 FP3 FP4 FP5 FP6

Distribution per unit excluding gain on sale Distribution per unit with gain on sale

Average DPU Yield5.8% (ex. Gains on sale)

Average DPU Yield5.3% (ex. Gains on sale)

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Investment Ratio: Central Tokyo Office

“Sakura’s portfolio has a disproportionately high weighting to Central Tokyo office. This is widely acknowledged as the strongest sector currently in the Japan real estate market”

Investment Ratioby Asset Type

“Sakura’s portfolio is well balanced for growth (office / residential) and stability (retail / other). Star Asia REIT has a significant weighting to logistics and hotels (50+%). Almost half of the hotels in Star Asia REIT’s portfolio have appraisal values less than current book value”

Comparison of Investment Portfolios: Key Metrics

Office 44.0%

Retail40.0%

Residential11.7%

Other4.3%

Central TokyoOffice

40.5%Other

59.5% Other86.8%

Central TokyoOffice

13.2%

Note: On acquisition price basis as of the most recent FP end

Office34.8%

Residential 14.9%

Logistics 30.3%

Hotel20.1%

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Occupancy Rate(Total portfolio)

“Sakura REIT has consistently outperformed Star Asia in terms of portfolio occupancy”

Occupancy Rate(Residential)

“Sakura REIT has also outperformed Star Asia REIT in maintaining high levels of occupancy in its residential portfolio. This is an asset class that has regular tenant turnover and is indicative of the leasing capabilities of the asset manager.”

Consistently Higher Occupancy

AverageSakura REIT: 98.2%Star Asia REIT: 97.4%

AverageSakura REIT: 96.4%Star Asia REIT: 94.9%

（%）

（％）

90.0

92.0

94.0

96.0

98.0

100.0

Sakura Residential Star Asia Residential

95.0

96.0

97.0

98.0

99.0

100.0

Sakura total portfolio Star Asia total portfolio


Section 3

Conclusion

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Sakura REIT considers the notice to be abusive and ignores the interests of Sakura unitholders.

Sakura REIT considers the notice as a “hostile takeover” attempt and rejects such notice and request without hesitation.

The Executive Director of Sakura and Sakura Real Estate Funds Management remain fully committed to continue to protect the best interests of Sakura unitholders at all times.

The “merger proposal” from Star Asia is NOT in the best interests of Sakura unitholders

Conclusion

La Park Kishiwada SC/ Osaka

Abode Yoyogi Parkside/ Shibuya-ku

Nara Building/ Shin Yokohama

Hiei Kudan Building/ Chiyoda-Ku

Azabu Amerex Building/ Minato-Ku

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Disclaimer

This presentation material has been prepared solely for providing information, and not for soliciting investments in certain products.

The presentation material includes, in addition to a description of Sakura Sogo REIT Investment Corporation (hereinafter the “Investment Corporation”), data published by third parties. Furthermore, it includes present analysis, judgments and other opinions of the Sakura Real Estate Funds Management, Inc. (hereinafter the “Asset Management Company”) regarding such information.

The Investment Corporation or the Asset Management Company bear no responsibility with regard to the accuracy of the data published by third parties.

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